The MSM Rediscovers the Classics

10 November 2009 at 11:11 pm 5 comments

| Peter Klein |

The rediscovery of Keynes is one of the official storylines of the financial crisis and global recession. The problem is that Keynes was, in my judgment, a charlatan, a clever man obsessed with his own cleverness who never paid serious, thoughtful attention to economics (or any subject). You have to learn a little about Keynes to be well-educated and — because of his vast influence — to understand contemporary macroeconomic thought, but otherwise there is little intrinsic value in his writings.

Happily, the mainstream media is rediscovering other writers too. Last week the WSJ ran a nice piece on Mises, “The Man Who Predicted the Depression,” focusing on Mises’s 1912 Theory of Money and Credit (the book dismissed by Keynes as unoriginal, with Keynes admitting, a few years later, that he understood German well enough to comprehend things he already knew, but not to grasp anything new). “With interest rates at zero, monetary engines humming as never before, and a self-proclaimed Keynesian government, we are back again embracing the brave new era of government-sponsored prosperity and debt,” writes Mark Spitznagel. “And, more than ever, the system is piling uncertainties on top of uncertainties, turning an otherwise resilient economy into a brittle one. . . . How curious it is that the guy who wrote the script depicting our never ending story of government-induced credit expansion, inflation and collapse has remained so persistently forgotten.” Yesterday, Reuters ran Rolfe Winkler’s piece urging readers to study Mises and  Hyman Minsky while Investor’s Business Daily featured an item on Schumpeter.

Today, Don Sull’s Financial Times column focuses on Frank Knight, whom Sull calls “an American Socrates.” (OK, it’s a blog, not a column, and Sull is a management professor at LBS, not some hack journalist, but you get the point.) “In these unsettled times,” Sull writes, “it worthwhile revisiting the contribution of Frank Knight, an economist who was among the earliest and most penetrating analysts of what uncertainty and risk meant, and how they influenced a firm’s ability to make a profit.” Knight is one of the greats, a brilliant and idiosyncratic thinker who could be spectacularly right (on profit) and spectacularly wrong (on capital). Sull’s blog entry today is a teaser, with a promised follow-up to deal more specifically with the risk-uncertainty distinction (my take is here). Watch for it!

Entry filed under: - Klein -, Management Theory, People.

No Required Ethics Course at Chicago-Booth Cochrane on Krugman

5 Comments Add your own

  • 1. David  |  11 November 2009 at 1:42 pm

    “The problem is that Keynes was, in my judgment, a charlatan, a clever man obsessed with his own cleverness who never paid serious, thoughtful attention to economics (or any subject).”


    Recently Dick Armey was quoted as claiming that Larry Summers is not a real economist or some such nonsense because he got his PhD at Harvard. Of course, this obviously compares poorly with Armey who earned his from OSU and went on to an illustrious academic career at North Texas State before getting into politics.

    Austrian economics has not been a very well kept secret all these years. They gave lectures at LSE along side Keynes. Is it perhaps possible that ideas inspired by Keynes work have had more influence because they won in the marketplace of ideas? Has there been some sort of global conspiracy to repress the Austrian Truth? Have all of the top figures in economics over the last 50 years been deceived or are they all in on the vast intellectual conspiracy? Is everyone out of step but Johnny?

  • 2. Peter Klein  |  11 November 2009 at 2:35 pm

    “Is it perhaps possible that ideas inspired by Keynes work have had more influence because they won in the marketplace of ideas?”

    Sure, it’s possible, but it clearly didn’t happen in this case. The rise (and fall) of Keynesianism has been analyzed in dozens of articles and books, and the intrinsic merit of Keynesian theory plays virtually no role. The most obvious explanation for the Keynesian revolution is that the GT provided a framework that rationalized the massive stimulus and nationalization policies that Western governments had been pursuing since the start of the Depression. Keynes told policymakers, and young (left-leaning) economists exactly what they wanted to hear.

    More generally, I don’t think any serious historian or philosopher of science believes theories of doctrines advance by “winning” in the “marketplace of ideas.” That’s simply not how science works. Institutions, funding, personalities, etc. are critical. (I doubt even today’s most stalwart Keynesian economists think that, say, critical legal studies or postmodern narrative gender theory etc. dominates the humanities because it “won” the battle of ideas.)

    BTW, note that it’s the unreconstructed Keynesians like Krugman who are out of step. Keep in mind that “pure” Keynesianism has been dead since the 1950s, and the neo-Keynesian synthesis dropped out of mainstream macroeconomics by the end of the 1970s. I think most of the profession is embarrassed by Krugman and De Long, and would take Cochrane or Mankiw or Zingales over those clowns any day.

  • 3. David  |  11 November 2009 at 4:46 pm

    Naturally ” ‘pure’ Keynesianism has been dead since the 1950s.” What pure science or social theory of Keynes era lives on?

    Krugman is clearly no longer acting in his professional role as an economist any more than is Armey. A lot of popular consumers of his current product don’t see the distinction but a lot of people think that Michael Moore is a documentarian or that Ayn Rand was a philosopher. That, however, is the failing of those individuals and the educational systems that produced them. Krugman has the same right to run his mouth as do Limbaugh and Hanity.

    Are Cochrane, Mankiw or Zingales Austrians? I seem to recall Mankiw self-identifying as a New Keynesian.

    Note the words “inspired by Keynes work” in the quote above. I don’t think that even Krugman in his recent infotainment role has argued in favor of “unreconstructed” Keynesianism. We know a lot now that we didn’t know 70 years ago.

    My point was not that Keynes was proven “right.” My point was that it seems a bit over the top to claim that he was “a charlatan, a clever man obsessed with his own cleverness who never paid serious, thoughtful attention to economics (or any subject).” I would argue the same if point if someone were to make the equivalent claim about Hayek, though his ideas proved to be less influential.

    I think that economics moved beyond the Keynes-Hayek debate along time ago. It seems more productive to debate the relative merit of current *ideas* than to engage in personal attacks of historical figures as some kind of proxy war.

    Krugman, DeLong, Cochrane, Mankiw and Zingales are, of course, not historical figures. From what I’ve observed recently Mankiw and DeLong differ on many points, but they seem to share a basic framework for discussion and don’t appear to consider each other clowns. Neither are purely professional economists at this point but they are far from joining Krugman.

    Why the invective about personalities? Everyone should just present their model and we can take the models to the data.

  • 4. Peter Klein  |  11 November 2009 at 5:10 pm

    Dude, lighten up. This is a blog, not an academic journal.

    My off-hand, ad hominem remark about Keynes the man was, well, exactly that. Keynes himself was, in my view, a crank. You know the old Gerald Shove line, “Maynard never spent the half hour necessary to learn price theory.” Does that prove that “Keynesian economics,” or the “Keynesian framework,” let alone neo-Keynesianism, New Keynesianism*, Post Keynesianism, Not Your Father’s Keynesianism, or whatever, is wrong? Of course not. But so what?

    BTW, I certainly don’t think crude, sassy, over-the-top blog posts are substitutes for serious academic work, for “debating the relative merit of current ideas,” as you put it. They’re complements. We certainly try to do the latter here as well. But blog posts aren’t always the most appropriate vehicle. And for the record, I don’t consider Mankiw a clown.

    * My own macro training was all New Keynesian: Akerlof, Christy Romer, David Romer, and Alessandra Casella, in person, and Mankiw, Blanchard, Fisher, Azariadis, Kashyap, etc. So yes, I know this is a bit different from what’s in the GT. :-)

  • 5. REW  |  11 November 2009 at 8:27 pm

    Sometimes when you fan the fires, you lose a little skin ;-)

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